EU's policy environment credited with lack of biofuel investment

A new study published by Agra CEAS Consulting shows that the uncertain policy environment in Europe is negatively impacting investment in first- and second-generation biofuels. The report, titled “EU Biofuels Investment Development—Impact of an Uncertain Policy Environment,” demonstrates that there has been a dramatic slowdown in the rate of investment in traditional biofuels and investment in advanced biofuels do not seem to be compensating for this decline.

The report explains that while the European Commission set mandatory biofuel targets for all Member States through the Renewable Energy Directive in 2009, recent discussions have focused on issues such as indirect land use change (ILUC) and food security. However, the analysis stresses that little discussion has focused on the investments needed to produce second-generation biofuels, and what the drivers for those investments are.

According to the report, frequent changes and uncertainty in biofuel policy is not the only issue hindering investments in biofuels in Europe. Unlike the renewable electricity program in Europe, the biofuels industry does not have the equivalent of the feed-in tariff program to serve as a legislative provision for supporting production.

While the analysts estimate there are currently approximately 25 small-scale second-generation biofuel projects under development in Europe, given the current investment climate, it is highly unlikely all will come online by 2020. “Moreover, even if they were all to come on stream within the timeframe, these new projects are in the main relatively small-scale advanced biofuels plants which would thus add little additional capacity to that required to meet the mandated levels,” said the researchers in the report.

The analysis concludes by noting that the primary reason biofuel capacity is no longer being built in line with projected 2020 mandated demand is the continued investment uncertainty resulting from changes in policy direction and a lack of clarity in future policies. “Discussions with the sector have revealed a consensus that investment cannot proceed without a clear policy framework going forward,” states the report. “Given the inherent risks to margins which arise from operating in a market characterized by increasing, and likely continuing, volatility in feedstock costs investors need a longer secure planning horizon of at least 10 years to ensure adequate returns. There is an urgent need for the biofuels policy framework to be set up to take this into account.”

A full copy of the report can be downloaded on the Agra CEAS Consulting website.